What is business insurance? It’s exactly what it sounds like. For the better part of your adult life, you’ve probably been paying for car insurance, life insurance, and health insurance. Why? Because it safeguards you in situations that are often out of your control and beyond your ability to cover financially. Business insurance protects your small business in a very similar way, offering you financial coverage in the case of lawsuits, injuries, accidents, honest mistakes, and other occurrences that are often unexpected and uncontrollable. What is business insurance? Business insurance protects your small business, offering you financial coverage in the case of lawsuits, injuries, accidents, honest mistakes, and other occurrences that are often unexpected and uncontrollable. And just as there are many different types of personal insurance policies, there is a huge array of business insurance policies—some very general and others quite specific in scope. Why Does Your Business Need Insurance? Even if your business is a sole proprietorship or you only employ a handful of employees, you may still need some business insurance policies. You might not need to put together an incredibly complex program. However, there are policies that every business should consider for the simple reason that there are business risks that every business faces, no matter their size, industry, structure, or location. It’s also very important to note that business insurance doesn’t nullify these risks or wipe them from existence. It does, however, mitigate these risks and offer your business a certain level of protection that can often be indispensable. To avoid ambiguity, here are the three most direct reasons why businesses need insurance: Your business could get sued - According to the Small Business Association (SBA), the cost of litigation for small businesses ranges between $3,000 and $150,000, and between 36% and 53% of small businesses face litigation every year. Some insurance policies are mandated - Certain types of business insurance are required by law. Namely, if you have any employees at all, just about every state requires you to purchase a workers’ compensation policy. Unemployment insurance and disability insurance are often required policies, as well. Many business partnerships require insurance - If you want to take out a business loan from a bank, you’ll need insurance. If you’re looking to raise venture capital for your startup, there are types of insurance policies that you will need to procure (most notably, a directors and officers insurance policy). For their own protection, vendors, merchandisers, distributors, and other types of business partners will often require you to have certain policies before signing a contract and agreeing to do business with you. Types Of Business Insurance Obviously, not every business needs every type of business insurance, and the type of insurance, the amount of insurance you need, and the cost of your insurance will all depend on a large variety of factors, including your industry, business size, location, number of employees, revenue, and much more. Let’s talk about some of the most basic and general types of insurance for businesses that just about every small business owner should purchase in order to mitigate basic business risks and secure financial stability and sustainable growth. General Liability Insurance There are no legal requirements that mandate the purchase of general liability insurance, but it’s nonetheless a policy that every small business should acquire. If a third party (a customer, client, or business partner) suffers an injury or damages on your business property or as a result of your product or services, general liability insurance would protect your business and cover your legal expenses. If you run a small business where accidents are common—like a restaurant or a construction business—you should seriously consider buying a general liability policy. Commercial Property Insurance This insurance policy protects your business property. Not only does it protect your office or physical place of work, but it also covers things such as equipment, inventory, and signage, as well. So it’s obviously a must-have for a brick-and-mortar business, but even if you’re an online shop with a storage facility that houses your inventory, it definitely wouldn’t be a bad idea to protect that property with commercial property insurance. Commercial property insurance is a bit complex since there are usually exclusions and other decisions you need to make when putting your policy together. For example, there are actual cash value policies and replacement cost policies. Actual cash value means that you will be getting the current market value of the damaged or stolen property, while replacement cost means that the actual, brand-new cost of the property will be covered. A basic commercial property insurance policy will cover incidents such as vandalism, theft, fires, and some more minor, weather-related damages. Natural disasters such as earthquakes and wildfires are usually not covered, but specific coverage can be added to your policy if your business is located in a high-risk area. Business Interruption Insurance Another complementary policy to look into is business interruption insurance. So if, for example, your business is badly damaged in a fire, your commercial property insurance will cover the costs of repairing your property and getting your business up and running again. Business interruption insurance will also cover your lost income during this recovery period. Pro tip: Insurance carriers are aware that most businesses will want to purchase general liability, commercial property, and business interruption insurance, which is why these three policies are often bundled as a Business Owner’s Policy (BOP). Buying a BOP instead of these three policies separately saves you time and money. Workers’ Compensation Insurance Just about every state requires employers to carry workers’ compensation insurance. Businesses that don’t purchase workers’ comp can be fined and even face criminal penalties. A workers’ compensation policy will cover all work-related employee injuries. So if your employee is injured performing his or her job, this insurance policy will cover their medical expenses, rehab costs, and lost wages. If your employee does not agree to be compensated via this insurance policy and wants to file a claim against your business instead, your workers’ compensation policy will cover those legal expenses as well in most cases. Cyber Liability Insurance Some people assume that cyber liability is something that only software companies and tech startups need, but that couldn’t be further from the truth. Today, just about every business relies on the internet in some way or another. And whether you’re a restaurant or an auto parts store, there’s a good chance that you deal with and store sensitive customer information. A cyber liability policy protects your company in the event of a data breach or cyber attack. If your system is hacked and your customer information (Social Security numbers, credit card information, bank account information, etc.) is compromised, a cyber liability policy will pay the costs of notifying your customers, civil damages if you are sued, and even computer forensics that you will need to pay for to uncover the cause of the breach and prevent these types of incidents from occurring again. What Types Of Insurance Are Required For Small Businesses? Depending on your small business’ characteristics and circumstances, regulations may require you to have certain types of insurance. The rules vary between states, but the most commonly mandated coverages include: Commercial auto insurance - Except for New Hampshire and Virginia, every state requires commercial auto insurance for any vehicle your business uses. Workers’ compensation insurance - If you have one or more employees, every state except for Texas requires that you have workers’ compensation coverage. Healthcare insurance - If your business has 50 or more full-time employees, the Affordable Care Act (ACA) requires that you offer them health insurance. These are the most frequently required forms of business insurance, but it’s not an exhaustive list. Some small business owners may be subject to additional regulations. For example, seven states require that physicians have medical malpractice insurance. That said, not being required to have a type of insurance doesn’t mean it’s safe to go without it. General liability, commercial property, and business interruption insurance typically aren’t mandated, but every business owner should consider purchasing them. How To Pick An Insurance Policy For Your Business Unfortunately, getting business insurance isn’t as simple as figuring out which risks you need to cover. Contrary to what you might expect, there can be significant differences between policies, so you should always shop around and do your research before you pick one. Here are some of the most significant factors to consider when looking for coverage: Premiums - Of course, the price tag is the first thing you look at when you’re shopping for anything, and you must select a policy that’s within your business’ budget. However, you should also be careful not to focus so much on cost that you fail to adequately cover your risks. Limits - Insurance policies can have several restrictions that cap how much they pay out for covered losses. For example, in addition to a flat policy limit, property insurance policies may only reimburse you up to the depreciated value of a covered asset. Exclusions - Insurance policies often exclude specific types of losses from coverage. For example, commercial property policies generally don’t protect your business’ buildings from flood damage. If you need to insure that risk, you must purchase additional coverage. Fortunately, online comparison sites make it easier than ever to explore your insurance options. Many of the most popular insurance companies also offer digital tools to help you get a quote from them online. Insurance agents can also be an invaluable resource in helping you find the right business policy. Don’t be afraid to set up consultations with a few of them to ensure you find one with good products and customer service. Other Policies To Consider Buying business insurance is all about weighing your business risks and determining which policies would be a worthy investment. While the aforementioned policies could be considered essential for a majority of businesses, there might be other insurance policies that could be deemed as essential for your business based on your specific risk profile. Here are a couple of other business insurance policies that many business could use: Employment Practices Liability Insurance Not only are employee lawsuits on the rise, but they are also often resolved very slowly and can be super-expensive, which is why more and more employers consider EPL insurance essential coverage. It protects businesses from employee claims of harassment, discrimination, failure to promote, wrongful demotion, and more. Professional Liability (Errors & Omissions) Insurance Also known as “malpractice insurance,” this policy is most commonly associated with lawyers, accountants, doctors, and others that provide professional services in which errors and mishaps could easily lead to lawsuits. Key Person Insurance This insurance is basically a business-related life insurance policy. If you or any other key member of your team dies or becomes disabled and can no longer lead the business, this policy kicks in to provide financial coverage as your business takes steps to replace the key person it has lost. Key person insurance is commonly used as a guarantee for business loans as well. Ask An Insurance Agent For Help Many digital resources are available to help you navigate the complexities of business insurance, but they're no substitute for a professional. If you know you need coverage for your small business, do yourself a favor and enlist the help of an insurance agent. An experienced agent can tell you what types of insurance are most beneficial for businesses like yours and make personalized product recommendations. They can also explain the details of a policy's coverage and address any questions or concerns you might have. Contact a few agents today to get the business insurance you need.